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Enthusiasm for creating new business lines, both directly and indirectly tied to core skilled nursing facility (SNF) or assisted living (AL) operations, could not be higher among many long term and post-acute care (LT/PAC) providers.Large and small owner/operators see diversification as a pathway to boost revenue and a means for survival amid increased reimbursement uncertainty, tight margins, and persistent concerns over occupancy rates.

The reasons for branching out are many and peculiar to each company and market geography. Some diversify to fill a market need. Others may do so to get a spot at the table as pay-for-value reimbursement models take hold and accountable care organizations (ACOs), bundled payment systems, and preferred provider networks demand high-quality expertise and differentiation from the competition.

Still, other LT/PAC providers are on the smaller end of the sector’s spectrum with limited numbers of buildings, and they see diversifying as an opportunity to increase their footprint and build scale. If there is a common theme among these companies, it is that margins are tight from Medicare and Medicaid revenue, and it is high time to fill other market niches to grow.

To put some perspective on what is happening, Jennifer Soule, director at S&P Global, says that the three words that seem to be on every health care executive’s lips—continuity of care—are spurring the diversification trend across all care settings. “We are seeing hospitals trying to control more of the continuum by diversifying revenue streams from the inpatient to the outpatient setting,” she says.

And, as hospitals shift their focus, LT/PAC providers need to be alert as their movements affect the next part of the continuum, be it up- or downstream from nursing care.

For acute care, it is all about putting outpatient rehab and nursing care centers where people have easy access to the location. “For example, it is costly to park a car in Boston, $40, if you can find parking. So many providers are putting outpatient centers closer, right in the community in which their customers live,” Soule says. “And, these are not just MRI or MinuteClinics [clinics in CVS retail drug stores, for example], but more like comprehensive care where a broken leg can be set and more than just that kind of quick and easy ‘I have a rash.’”

Just like in long term care, the revenue pressures are immense for all providers, she says. Concerns about Medicaid funding never seem to end from state to state, especially for multistate providers, and there is Medicare as well, plus battles to be had with commercial health plans on reimbursement levels.

“There is just a tremendous amount of uncertainty,” which is part and parcel of the political upheaval in Washington, D.C., where attempts to undo the Affordable Care Act have been joined by efforts to dismantle traditional Medicaid funding, leaving a dazed health care profession to figure out—and sort out—what comes next, Soule says.

In looking at how to achieve success in ancillary businesses, for example, by offering Medicare Advantage (MA) health insurance to residents or by creating home health or specialty medical service units, providers must first do their homework before leaping into something new and untested.

Providers should also be prepared for setbacks, which can ultimately be corrected or may be a sign to abort the effort, according to those who have made the leap.

Making mistakes and taking risks can in some cases be avoided by partnering with others, but most times the process involves a home-grown effort. And, this means hiring new staff, undertaking trial and error on what works, and putting money up front to fund the endeavor.

In the end, these skilled nursing and assisted living operators see expansion into other market segments as a challenge, but one in which they want to excel, and they speak with excitement about what they are doing and what may come next.

To better understand these modern business strategies, here are the stories of  providers that have taken the plunge in acting to parlay their expertise into something more.

Robert Van Dyk, president and chief executive officer (CEO) of Van Dyk Health Care​, based in Ridgewood, N.J., says diversifying for his family-held company takes on two forms. One is to diversify the in-house product line, along the realm of the SNF services offered, which he more aptly calls “specialization.” The other side is to add more post-acute services “so that we can provide continuity of care as well as being part of the continuum of care.”

What spurs Van Dyk to action? “I think initially it is what is the market, what is the consumer looking for?” he says, pointing out that his definition of consumer has changed on the SNF side. “That consumer is now my ACO, my insurer, my hospital, and my health systems. It is what the customer wants. That is really why we have gone in the direction that we have.”

That direction included tackling the challenge of creating Heartways, the Van Dyk cardiac specialty program, in 2012, which included hiring a full-time nurse practitioner. Then two years later, the company created a specialty pulmonary program, Just Breathe.

“A year later we hired a full-time respiratory therapist. And, we have a pulmonologist. His nurse practitioner comes in almost daily on the respiratory side. This has had an impact on length of stay on the cardiac and pulmonary side, and has been huge, especially in pulmonary,” Van Dyk says.

To continue exploring avenues for growth, in 2015 came Life Moves, which puts a greater focus on orthopedics.

While Van Dyk has long been caring for those with dementia—in 2001 the company opened an assisted living facility with a secure memory care program called Reflections—in 2017 the provider planned to break ground on a day care center focused solely on people with dementia and Alzheimer’s.

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The results from Van Dyk’s specialization swing have been excellent, he says. Traffic has increased since the company doubled down on diversifying.

“My graphs show admission averages on a monthly basis are going up and up. In 2014, it was 68 patients a month on average, in 2015 it was 76, and in 2016 it was 77. For 2017, we are at around 89 to 90 admissions a month on average,” he says.

“Those numbers have jumped significantly, but length of stay has gone down. In 2014, it was 23 days, on average, and this year length of stay is 15.”

The diversification has not been limited to clinical specialty work. In 2015, Van Dyk debuted a home care company because he says the home-based providers available for his residents were not up to speed. 

“We also wanted to be able to create more of a continuum so that we were able to be a more attractive partner to all of the new groups emerging, whether it was the bundlers or the ACOs and hospital systems,” he says.

This whirlwind of activity has an organizing purpose even if the growth seems to be coming fast and furious. “Your goal in all of this is to become a preferred provider, and to me that is the end game,” Van Dyk says.

One aspect of this is the company’s contracts with managed care companies, like UnitedHealthcare and Blue Cross Horizon, which at their core are about building relationships and maintaining strong ties to hospitals and hospital systems for referrals.

And, in today’s LT/PAC space, that means a provider must keep augmenting its portfolio to meet demand and check all the boxes that may influence how many people walk through the front door. Van Dyk believes specialization, along with close personal relationships, shows a firm commitment to customers.

A second perspective on how to supplement LT/PAC care revenue comes from Gary Kelso, president of Mission Health Services in Greater Salt Lake City, Utah. His company is a nonprofit seeking to bridge its “mission” with its appetite for meeting the needs of its consumers through new enterprises.

“There is I think this perception that as a nonprofit there are certain things you do not do, and sometimes diversifying may imply you are changing a little bit of your mission and vision,” Kelso  says. But, that is not the case at all. The values of Mission Health Services have remained steadfast while at the same time the company has worked to expand its footprint through an affiliation with another nonprofit home care hospice company, he says.

“We have a little bit of the AL side, we have the skilled side, but what we were missing, if you start to look at bundled payments, ACOs—what we needed was a strategy of transition of care. And, transition in our marketplace had some of our hospitals talking about skipping the SNF altogether,” Kelso says.

“We know the skilled market is not going to go away, but it is going to look different, and so for us we started integrating services with this large home care hospice, Community Nursing Services, one of the largest in Utah. And they are also nonprofit.”

So, Mission and Community Nursing Services started utilizing each others’ offerings  in a “quasi-merger” arrangement wherein there is now a single board of directors for the two companies. Beyond the corporate structure, there are tangible, everyday parts of the collaboration, like meeting Mission’s demand for therapy services, Kelso says.

“We didn’t go to a therapy provider, we went to Community Nursing Services. They have about 80-plus therapists, and they started doing services,” he says. Beyond therapy, there are other areas that Mission will tap in its collaboration with its fellow nonprofit, like in pharmaceutical services.

“It has worked well, and the next step is rolling out the pharma piece with them, since Community Nursing Services has diversified into pharma as well,” Kelso says.

In addition to the unique merger of sorts that Mission has undertaken, the company also has other joint venture projects with for-profit concerns.

“Sometimes nonprofits tend to be very narrow and don’t want to move to the for-profit side, but we looked into it, and as long as you are clearly focused on your mission as a nonprofit, then there is still the intent to do what you need to do,” he says.

For Mission, that has meant working with companies to build new facilities, with the provider in the midst of erecting two large AL sites as well as exploring deals to replace some of its older buildings. “This allows us to get into the market with newer properties, which tend to help decision makers” when selecting a nursing center, Kelso says.

If you ask LT/PAC executives about diversification, more than one calls Portland, Ore.-based Marquis Companies, led by CEO Phil Fogg Jr., the “poster child” for innovation in the area.

A leader in pushing the company to take on new challenges is Anthony Laflen, director of data analytics for Consonus Healthcare Services, a sister company of Marquis, says Fogg. Operating for more than 25 years, Consonus is not exactly the new face of diversification, but as a provider of consulting, rehab, pharmacy, and post-acute care transformation services, the company continues to evolve as new market opportunities emerge, as seen by its push in the past seven years to take on the data analytics piece of pay-for-performance metrics.

As LT/PAC providers know, claiming to be a quality-driven operation does not work unless it can provide detailed data on outcomes, readmissions, and lengths of stay, among many other measurements.

Laflen tells Provider that with the advent of the Affordable Care Act there has been a mandate for more accountability in both the acute care and post-acute care setting, starting with readmission rates. That fact led Marquis leadership around seven years ago to be drawn into more conversations with managed care insurers who work heavily in Oregon and nearby states.

“No provider then had a reliable resource on readmission rates on a patient-to-patient basis. Even today on Nursing Home Compare [Centers for Medicare & Medicaid Services data], you will find data that is up to 29 months old,” Laflen says. Those data are also only for those patients who filed claims under Medicare Part A.

“This old data is totally unreliable, and to those insurers and providers steeped in managed care, it is very outdated. We saw this as an opportunity to aggregate live data and make it more useful.”

The issue became all the more real when Marquis was negotiating a managed care contract and the 

insurer had pegged the aggregate readmission rate for Marquis patients at 27.5 percent. Laflen said he had to raise his hand and object by noting the data were wrong because of the staleness of the CMS numbers.

“We needed live data,” he says.

This incident and similar experiences led Marquis on an odyssey over the intervening years to tackle the problem head on and become diversified even to a greater degree by starting a data analytics unit within Consonus.

After working with electronic health record software vendors on obtaining direct links to real-time data provided on an hourly basis, the germ of an idea on how to make data work for LT/PAC providers became a real business line.

“Phil is a visionary. I came to him seven years ago, and he asked, ‘How much is this going to cost?’ I said it was going to be expensive, but he took a leap of faith,” Laflen says.

He estimates that Marquis sank around $1 million or more in development of the data operation, but the investment “has been well worth it as now we and our clients can go into talks with a managed care payer (or any payer) and tell them what costs really look like. They will know what the appropriate length of stay is, for example, and the provider can have insightful conversations about what this means.”

The data cannot only help in contract talks, but in raising the quality of care through population health management techniques fermented across the Consonus universe, with the pharmacy experts working to gauge what works best for treatment options or therapy regimes. “We can now compare results before and after a procedure, such as trying new modalities for knee replacements, or adjust medications to increase mobility scores. This is already helping us reduce lengths of stay and ensuring optimal functional improvement,” Laflen says.

All of this will lead to lower readmission rates and savings for managed care organizations, hospitals, and the taxpayer. “We are eagerly rolling this into new markets and hope to solidify hospital and payer relationships for our 450-plus clients,” Laflen says.

In another spin on the diversification trend comes Christian Mason, president and CEO of Senior Housing Managers​. Located in Wilsonville, Ore., Senior Housing operates assisted living, residential care communities, and nursing centers in Oregon and Washington.

But, Mason does much more than that as an entrepreneur and self-described “tech geek.” To feed his inner Steve Jobs, he first started a separate company called Vigilan, which develops acuity-based software for senior living, assisted living, and long term care providers. The product line allows users to better control margins by charging for services delivered and having the right staff in the right place at the right time.

“As a tech guy, I look at what we can do as a provider to increase our margins through technology,” he says. And with Vigilan, the concept is grounded in giving providers the knowledge of exactly how labor costs are being utilized. This effort can be broken down to show such costs on a resident-by-resident basis, thus permitting the provider to charge accordingly and eliminate cost creep.

More recently came a second tech-based foray for Mason when he launched Integration Engineers. This start-up is a platform where providers can roll up multiple systems and take advantage of operational efficiencies in areas including energy usage, call system and clinical care management, and reduced staffing through the use of smart technology.

Additionally, Integration Engineers offers residents options for greater choices in their personal living environments such as entertainment packages, connectivity choices, and ease-of-use methodology. All of these programs allow seniors to take advantage of new technology by pushing a button, Mason says.

“Today we have more and more disparate systems. Everything from your HVAC in your buildings, to your call systems, to WiFi, to your security and clinical elements. It is essential that you are able to access control, so that is why I started Integration Engineers,” he says.

“The idea behind it is simple. You take all of those systems and put them into a common platform, so we are able to better manage all of those pieces collectively rather than individually.”

By using technology, a provider can squeeze more margin out of more parts of the business, Mason says. “If you think about it, how much energy do we spend trying to manage all these pieces? Like for call systems and keeping track of all resident calls and how you use staff time on that. If you can manage this [on a common platform], you can manage staff time better, so you are not over- or under-staffing but you are correctly staffing,” he says.

Another example would also be in how actual energy is deployed. Having more advanced software can create cost savings by better HVAC operations, powering down the system at night rather than pumping out power at the same rates needed during the day. The focus is to preserve cost outlays, Mason says.

Frank Romano, president, Essex Group Management Corp. in Rowley, Mass., sees the ability to diversify made easier by being an independent owner. Decision making, he says, runs more quickly than for larger companies. At the same time, Romano’s efforts to diversify have been augmented because of wider trends, like in his home state, Massachusetts, which has been working on ideas on how to shrink the number of empty nursing facility beds.

The question is what to do with all that space when it becomes free from its previous designation. “There are a bunch of options, like converting to assisted living or affordable assisted living [separate classification], or enhanced housing, or outpatient rehab, or even turning space into medical offices,” he says.

Any changes will require waivers from the state, but Romano sees promise from the activity and seeks new flexibility to offer nontraditional nursing care.

One of the areas Essex has explored and seen success in already is adult day health.

“Over the last 15 years we have moved to offering assisted living on the same campus as our skilled nursing. We also have adult day health and our own home care company. We find synergy in having various choices for families, and it appears to be helping our occupancy, which is above the state average,” Romano says.

And like Mason and his work on the tech side, Essex has seen opportunity in what has been lacking in its core business, which in this case is transportation. Essex is now not only a provider of care, but an owner of a fleet of 34 buses.

The idea came from a simple problem, which was that the company Essex had contracted with did not meet its needs in making sure residents being driven to and from doctor appointments were properly tended to, as in having a ride waiting when they were ready.

“I really got the idea from the hub-and-spoke methods of the airlines. Some of our residents were being left at the doctor’s office for two hours. Our buses stay with the resident at the doctor’s office,” Romano says. Effective in care, and also in marketing Essex to potential clients, the effort to make transportation part of the company portfolio has paid off.

“We had to learn how to do it. It was a struggle, since we never had a fleet of buses before,” he says. “Necessity is the mother of invention, as they say.”

Still another area of the health care universe to explore for providers is insurance, the payer side of the provider-payer equation. Among a number of LT/PAC operators that have entered into this once-foreign world is PruittHealth, which sponsors a Medicare Advantage (MA) plan under the name PruittHealth Premier​ in Georgia, the company’s home state.

Neil Pruitt Jr., chairman and CEO, says the last open enrollment period for 2017 saw the MA plan available in eight of Pruitt’s facilities in Georgia, but in 2018 the whole state will be covered in more than 50 facilities.

Though open enrollment is ongoing, the uptick in enrollees to the MA offering has grown exponentially and will easily clear the 1,000 mark for the 2018 plan year, he says. PruittHealth works on a joint-venture basis with a reinsurer on the stop-loss aspect of the business, which means the coverage is insured so that catastrophic claims or numerous claims do not exceed the financial reserves of a self-funded health plan.

On the challenges of being part of the risk-based insurance world, Pruitt says anyone entering the trade should be ready to manage a whole new set of regulations.

“You have to make sure you are compliant, and the regs are all totally different than for the post-acute care world,” he says.

Being on the insurance side does have a crossover effect on PruittHealth’s core business of providing LT/PAC care, as the focus on readmissions, for instance, as seen from the coverage side can help inform better practices on the care management side. 

After putting together the above stories about why providers diversify, it all becomes clearer: to raise revenue; to differentiate from the competition; to feed a personal interest or market need; to cover all the bases in the health care continuum; and, mainly, to strengthen the chances to do well in a rapidly changing marketplace.

To survive and thrive, a company willing and able to take the risk may be better equipped for the future. As Van Dyk says, the biggest challenge is to have the “guts” to do it in the first place.

“You know going in there is a financial commitment that has to be made, so that means there is a risk,” he says. “And, to me, that is the biggest challenge: overcoming fear of failure. And, having confidence in your years of experience and the research that you have done and conversations that you have had with your local health care partners.”

For Van Dyk, being able to understand what is going on in the marketplace is crucial.

“It’s all kind of scary because making a decision to invest in what you believe the future will hold, well that means part of it is being a creative visionary, or whatever terms you use,” he says. “If you cannot handle the stress of the potential risk, if you don’t have confidence in yourself, you should just avoid doing it.”